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Summary

Renowned Middle East expert Vali Nasr's bestsellingThe Shia Revivalprofoundly transformed the debate about the Iraq War by unveiling how the Sunni-Shia rift was driving the insurgency. Now, inForces of Fortune, Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world -- a new business-minded middle class -- that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.His groundbreaking analysis will utterly rewrite the wisdom about how the West can best contend with the threat of Islamic extremism, as well as about what we can expect from the Muslim world in the future. The great battle for the soul of Iran, the Arab world, Pakistan, and the entire region will be fought not over religion, Nasr reveals, but over business and capitalism.With a deft combination of historical narrative and eye-opening contemporary on-the-ground reporting from his constant trips to the region, Nasr takes us behind the news, so dominated by the struggle against extremists and the Taliban, to introduce a Muslim world we've not seen; a Muslim world in which the balance of power is being reshaped by an upwardly mobile middle class of entrepreneurs, investors, professionals, and avid consumers -- who can tip the scales away from extremist belligerence. His insights into the true situations in Iran, Pakistan, Afghanistan, and the crucial bright spots of Dubai and Turkey provide a whole new way of thinking about the troubles and prospects in the region.Drawing on his in-depth knowledge of the Muslim world's tortured history, he offers a powerful reassessment of why both extremism and anti-Americanism took hold in the region -- not because of an inevitable "clash of cultures" or the nature of Islam, but because of the failure of this kind of authentic middle class to develop in the nineteenth and twentieth centuries, largely due to the insidious effects first of colonialism and then of top-down dictatorial regimes, often supported by the West. He then shows that the devoutly Islamic yet highly modern Muslims of what he calls the "critical middle" -- in Iran, Pakistan, Turkey, and the stealth force behind the extraordinary growth of aggressively capitalist Dubai -- are finally the middle class the region has desperately needed. They are building a whole new economy -- as the middle classes did in both India and China -- and their distinctive blending of Islam and capitalism is the key to bringing about lasting reform and to defeating fundamentalism. They are people in the region the West can andmustdo business with.Forces of Fortuneoffers a transformative understanding of the Muslim world and its possible future that is sure to spark lively debate and to play a vital role in bringing about a sea change in thinking about the conflict with Islam.

Author Biography

Born in Iran, Vali Nasr is a professor of international relations at the Fletcher School of Law and Diplomacy of Tufts University, an adjunct senior fellow at the Council on Foreign Relations, and a senior fellow of The Dubai Initiative at Harvard University's John F. Kennedy School of Government. His book The Shia Revival was a New York Times bestseller. He has contributed to The New York Times, The Washington Post, and Time and appeared on Anderson Cooper 360, The Situation Room, Fareed Zakana GPS. Today, and Charlie Rose.

Table of Contents

The Power of Commerce

p. 1

The World According to Dubai

p. 28

Iran's Predicament

p. 50

The Tragic Failures of Secularism

p. 85

The Great Islamic Revolution

p. 116

The True Course of Fundamentalism

p. 145

The Prophets of Change

p. 176

Pakistan's Horror and Hope

p. 203

The Turkish Model

p. 232

Winning The Future

p. 252

Notes

p. 265

Acknowledgments

p. 293

Index

p. 295

Table of Contents provided by Ingram. All Rights Reserved.

Excerpts

CHAPTER 1THE POWER OF COMMERCE

Itall happened quickly. The Muslim world changed dramatically in the short thirty-twomonths that separated the Ayatollah Khomeini?s return to Iran on February 1,1979, and the assassination of Anwar Sadat in Cairo on October 6, 1981. During thattime of remarkable upheaval the forces of Islamic revolution seized Iran; Pakistanproclaimed itself an Islamic state; the Soviet Union touched off a jihad by invadingAfghanistan; and Egyptian president Anwar Sadat was assassinated by radicalfundamentalists. Since those fateful years, many more violent revolts, deadlyclashes, terror attacks, and bloody suppressions have followed, along with deepeningconservative Islamic attitudes and anti-Americanism across a vast swath of countriesfrom North Africa to Southeast Asia. Extremism has come of age in this cauldron,giving rise to al-Qaeda, and its cult of violence and dark vision of thefuture.

In the face of all of this tumult, and in response tothe rise of terrorism, America?s most abiding objective in the Middle Eastsince 1979 has been to contain and defeat Islamic fundamentalism. That object hasdetermined how America sorts its allies from its adversaries, which fights it hastaken on, and whether in pursuing its interests it will champion reform, promotedemocracy, or look to dictators and military solutions. It has also led Americaperilously close to reducing everything in the Middle East to the fight againstfundamentalism, and to seeing every expression of Islam as a threat. The U.S.leadership has seen the fundamentalist challenge largely as a new kind of cold war.That sort of clarity canbe a great help, but it can also grossly oversimplify, obscuring vital aspects ofthe situations within countries and regions that provide opportunities for improvingrelations.

Looking at the Middle East as it istoday?caught in the web of violent conflicts, seething with anger andanti-Americanism, and vulnerable to extremist ideas?it is difficult to havehope for the future. But, however difficult, that is just what we must do. In hisperceptive bookThe Age of the Unthinkable, thestrategist Joshua Cooper Ramo argues that by intensely focusing on that which isbefore us, we miss important trends?some barely detectable?that willshape the future.1The paradigms that dominate today maymatter little tomorrow. We will do ourselves a disservice if we think of our futurewith the Muslim world only in terms of today?s conflicts. These conflicts areserious, and we must prevail in them, but we should also recognize that there areother forces at work in the Muslim world and they too deserve ourattention?they may ultimately matter more to us.

Takethe case regarding the paradox of Iran, a brutish theocracy lording over a restlesspopulation that is also a rising power with ambitions to match its glorious ancienthistory, and a keen sense of purpose honed by decades of confrontation with theWest. An examination of the ironies of Iranian power, and the fault lines within thecountry?on display in the recent presidential election?offer aparticularly revealing starting point for rethinking the true challenges, andprospects, in transforming relations with the Muslim world. Iran?ssaber-rattling, and the Bush administration?s hard-line stance?now beingsoftened by the Obama administration?have diverted attention from importanttruths that belie the received wisdom regarding the Iranian threat, and those truthsspeak volumes about opportunities around the wider region.

Therecent history of Iran?s relations with the West is surely deeplytroubling.2Iran?s revolution empowered aparticularly uncompromising brand of Islam that has turned anti-Americanism into anarticle of faith in much of the Muslim world, and Iran?s rulers have steadilysupported terrorism with money, training, and weaponry. Iran also now openly seeksgreat-power status and is building a nuclear program. Making matters worse in recent years was the moreantagonistic approach to dealing with Iran that was adopted by the Bushadministration, and the badly managed prosecution of the wars in Iraq andAfghanistan.

For much of the past three decades, the UnitedStates and Iran were locked in a stalemate, with no diplomatic relations, but alsonot much in the way of direct confrontation. America was content to isolate Iran asmuch as possible while waiting for the clerical regime to succumb to perceivedinevitable internal pressures for change. In the wake of 9/11 that approach changed.The Bush administration believed it could nudge history along. Veterans of Reaganera cold war politics?the so-called neoconservative hawks who gathered aroundVice President Dick Cheney and Secretary of Defense Donald Rumsfeld?drewconfidence from what they perceived as the U.S. role in helping to toss communismonto the ash heap of history. They believed the toppling of Saddam Hussein and therise of a reasonably stable, democratic new Iraq next door to Iran would stirIranians into revolt and sufficiently unnerve the country?s clerical rulers toprovide that opening. The bitter irony was that when American troops showed up inIraq, the grip of Iran?s ruling clerics was strengthened.

By breaking the Taliban regime in Afghanistan in late 2001, topplingSaddam, and then uprooting Baathism in Iraq, the United States removed local rivalsthat had contained Iranian power to its east and west. Since the Shah?s timeand more so after the Islamic Revolution, Saddam?s military had been the mainbarrier to Iran?s expansionist aims. Today there is no indigenous militaryforce in the Persian Gulf region capable of containing Iran. What?s more, inthe political vacuum that followed Saddam?s fall, Shia Iran quickly extendedits reach into the predominantly Shia lands of southern Iraq. Many of Iraq?snew leaders had spent years of exile in Iran and relied on Iranian support duringthe dark years of Saddam?s rule. It was no coincidence that Iran was the firstof Iraq?s neighbors to recognize its new government and to encourage Iraqis toparticipate in the political order established by the United States. Now Iran runsextensive intelligence and political networks that give the Islamic Republicinfluence at every level of Iraq?s bureaucracy, clerical and tribal establishments, and securityagencies?impacting election results, the flow of trade, and the tempo ofviolence.

Iranian leaders are keenly aware of how theirregional influence has grown since 2001, and especially since 2003.3Formerpresident Muhammad Khatami, the onetime great hope of the reformers in Iran,captured this sentiment when I asked him in 2007 about how he assessed Iran?splace in the region. ?Regardless of where the United States changesregimes,? he observed, ?it is our friends who will come topower.?4True enough, Tehran has more impact onArab politics?especially in the critical zones of Iraq, Lebanon, andPalestine?than it did ten years ago. Not only does Iran?s influence inIraq far exceed that of any Arab government, but since the war between Hezbollah andIsrael in the summer of 2006, Iran has gained more say in Lebanon?s domesticpolitics as well?pushing for Hezbollah?s interests and constrictingpoliticians favored by the United States or Iran?s Arab rivals. The clericalregime has also kept up, if not jacked up, its meddling in Palestinian politicsthrough its support for the extremists of Palestinian Islamic Jihad and Hamas, aswell as cultivating ties with Syria. By excoriating Israel and taking advantage ofArab frustration with the lack of progress in the peace process, Iran seems to currymore favor these days on the Arab street than the tired old Arab dictatorships incharge. So it is that Iran?s Supreme Leader confidently boasted that noproblem can be solved in the Middle East without Iran?s consent andhelp.

Iran?s hubris was fueled by soaring oil prices in2007 and the first three quarters of 2008, which eventually topped out at close to$150 a barrel. Flush with petrodollars, Iran?s rulers were confident theycould afford their shopping spree for influence in the Palestinian Territories,Lebanon, and Iraq by supplying their allies and clients with funds,weapons?including rockets and missiles?and training. There is worryacross the Middle East that all this activity will only increase if Iran goesnuclear. Then Tehran will have little fear of reprisal for its boldly aggressivepolicies, which is one reason why a host of Arab nations now contemplate nuclearprograms of their own to temper Iran?s surginginfluence.

Talk of military action against Iran was rife in the Bushadministration throughout 2007 and 2008, but the United States had too much on itsplate in Iraq and Afghanistan, not to mention the deepening political crisis inPakistan, to take any such step. All of this seems to indicate that Iran has becomea juggernaut. But as the recent upheaval shows, the reality is morecomplex.

For the West, the most often used measure ofIran?s regional influence is the flow of arms and influence from Tehran to itsallies and clients. In order to gauge how much weight Iran is throwing around,America looks to metrics such as those above about the dollar amount Tehran promisesHamas, the volume of weapons it smuggles to Hezbollah, and the numbers of thosetrained in terrorist tactics by the Iranian Revolutionary Guards? shadowy QudsBrigade. There is plenty of this activity to alarm America and its Arab allies, andworse, those ties are becoming stronger. If Iran goes nuclear there is no tellingwhat havoc might be wreaked by means of Iran?s minions. There is no denying,then, that Iran?s hard power and influence have been growing. But viewingIranian power from that angle alone makes it look more inevitable and ominous thanit really is.

Economics has more to do with determining thepecking order in the Middle East than the region?s miasmic tumult of feuds,wars, and saber rattlings would lead one to believe. The Middle East is not just azone of clashing extremist ideas and zealous terrorist armies. It is also a place ofstruggling and thriving economies, where new classes and business elites areelbowing their way higher in the power structures of many countries, changingreligious, social, and political life on the way. Other contenders for great-powerstatus in recent memory, Brazil, China, or India, all rose to prominence not on theback of hard power but as economic stars driving growth in the regions around them.That is not the case with Iran. Iran is not going the way of the so-called BRICs (touse the somewhat misleading acronym that lumps petro-dependent Russia in with themore diversified economies of Brazil, India, and China). Iran?s economy is the151st most isolated in the world (that is out of 160) and sixteenth most isolated inthe Middle East (out of seventeen). Iran?s drive for regional power lacks aneconomic underpinning. And that makes gauging Iran?s regional power a trickybusiness. Hard power is not its most effective means to greaterinfluence.

Iran has most influence where it does most trade;where that influence is backed by economic and business relations. While Iran hasdeep ties to Lebanon?s Hezbollah and a long-running alliance with Syria, itsmost certain sphere of influence is far closer to home, in an arc that runs fromCentral Asia in the north and east down through western Afghanistan and on into thePersian Gulf and southern Iraq to the south and west. ?When you go to CentralAsia these days? remarksThe AtlanticMonthly?s Robert Kaplan, ?you feel you are in greaterIran.?5It is in this arc where Iran does mostof its regional business, selling agricultural products, electricity (a big-ticketitem in this air-conditioning-hungry region), natural gas, and even manufacturedgoods.

The trade between Iran and the five Central Asian?stans was worth well over $1 billion in 2008 (up from $580 million in 2001).The Iranian rial changes hands there as easily as local currencies. Counting theunaccounted for cross-border trade, Iran does about the same amount of business withAfghanistan (up astronomically from a paltry $52 million in 2001). Trade with Iraqtopped $4 billion in 2008 and with the United Arab Emirates reached $14billion?a figure that doesnotinclude allthe black-market trading that goes on across the Gulf. In fact, Iran has such avital interest in this trade that the regime has created banking and financial tiesand invested infrastructure projects in these countries ranging from roads,railways, and piers to pipelines and electricity pylons. Businesses of all kindshave grown in these countries on the back of this trade.

In somany ways, Iran is well qualified to become a true economic powerhouse driving widergrowth in the region. Its nearly 70 million people give it a population about thesame size as Turkey?s. It has vast oil and gas reserves, plus a strongindustrial base by regional standards. Labor is cheap but the literacy rate is high,over 75 percent. As the country?s thriving art scene and internationallyacclaimed movie industrysuggest, Iranians are also far better plugged into world culture than is the norm inthe region.

Iranians are Web- and mobile-savvy (Persian is theworld?s third most widely used language online, the country boasts the mostbloggers per capita anywhere in the world, and almost two-thirds of thecountry?some 48 million people?are mobile phone users). They are alsotechnically adept: The country?s leading technical school, Sharif Universityof Science and Technology in Tehran, turns out world-class engineers and scientists.Stanford regularly admits Sharif alumni into its graduate programs in engineering,and according to one Stanford professor and former department chair, ?Sharifnow has one of the best undergraduate electrical-engineering programs in theworld.?6

This sort ofhuman-capital development can make Iran a player in the competitive global economy.The degree of ingenuity and skill already present is attested to, ironically, by thenuclear program, which is run by homegrown experts. Iran?s rulers even like toclaim?despite great skepticism in most Western quarters?that the nucleardrive and rocket program will be Iran?s ticket to economicglobalization?s cutting edge.7And it is not just splitting atoms thatis supposed to catapult Iran into global status, the country is also investing inspace research and biotechnology. Research outfit Iran Cord Blood Bank, created in2003 with the Supreme Leader?s blessing, has committed $2.5 billion to humanembryonic stem cell research to help cure a range of ailments from heart disease tomultiple sclerosis.8The initiative has surged ahead takingadvantage of the fact that a fetus is not considered a human in Islamic law beforethe end of the first trimester of a pregnancy.

In a moredown-to-earth vein, Tehran mayor and former Revolutionary Guards commander MuhammadBaqer Qalibaf talks of development in terms of economic reform, private sectorgrowth, and globalization. When he ran for president in 2005, he fashioned himselfas the Islamic Republic?s version of the maverick state-builder and founder ofthe Pahlavi monarchy, Reza Shah, turning heads with his colorful feel-good campaignposters that promised growth and prosperity. The same themes crop up routinely in Qalibaf?sspeeches and interviews as the can-do mayor of Tehran.

Suchhopeful talk from the higher-ups falls flat, though, before the reality of an Iranwhere inflation is running at double digits and about a quarter of the workforce isjobless. The problem is not a lack of enterprise or fundamental potential. Iran hasa dynamic private sector and the middle class to go with it. The economist DjavadSaleh-Isfahani estimates that around half of Iran?s population of 70 millionis middle class or above?counting their possessions, disposable income, levelof education, and family size?with the kind of social attitudes that areneeded to support robust consumption habits and modernizing change.9Theproblem is that Iran?s private sector is shackled by a corrupt and inefficientstate that dominates 80 percent of the economy. The state grew to its current sizeafter the revolution by devouring large parts of the privatesector?nationalizing businesses, banks, and industries. It prioritizesspending on the poor above achieving economic growth, and therefore sees no problemin stifling entrepreneurship with red tape, starving businesses of resources, andtaxing them dry. It is top-down centralized economic management at itsworst.

When it comes to the economy, Iran is not a regionalleader but a regional laggard, dawdling in the soggy bottomlands of suffocatingstatism. This economic stagnation was a powerful driver of the vehement oppositionto Ahmadinejad in the recent election. The thing to watch in Iran over the next fewyears is the private sector and the middle class tied to it?the same classthat in the aftermath of the June 2009 election led millions to ask ?where ismy vote?? The great battle for the soul of Iran?and for the soul of theregion as a whole?will be fought not over religion but over business andcapitalism. At issue will be whether the state will free the economy and let thisdynamic society reach its full potential.

The deeper truthabout Iran?s power is that playing the anti-American and pro-Palestinian cardsis not going to bring Iran lasting influence. As a senior Iranian official once toldme, ?When push comes to shove, the Palestinians will be the first to turn onIran.? Iran will not be able to truly dominate the region if it does not do a betterjob of developing its economic clout. Great-power status presupposes economicleadership, and that Iran is not currently providing. This is the key toIran?s quest for nuclear capability; the Iranian rulers think they need thethreat of nuclear aggression or retaliation in order to forestall Western pressurefor regime change and to intimidate neighbors, but even more important to punchabove their weight. After all, Iran?s GDP is about the same as that ofMassachusetts. It spends only $6 billion a year on its military. That is less than athird of Saudi Arabia?s military expenditure of $21 billion a year, and closeto half of Turkey or Israel?s annual military spending.10Beforethe revolution, Iran?s military expenditure was as high as 18 percent of GDP;today it is a paltry 3 percent. How can a country with an economy the size ofMassachusetts and the lowest military expenditure in its neighborhood take on theUnited States and claim great-power status? The answer in Tehran is that onlynuclear capability will address Iran?s glaring economic and military deficits.And if Iranians had any doubts that nuclear capability will raise their stock,America?s near obsession with the issue over the past six years has convincedthem.

But even with nuclear capability, the kind of statusthat Iran covets will elude it. Both India and Pakistan started down the nuclearpath in the 1970s, but only one of them emerged as a regional great power in the1990s. It was not nukes that turned India into a rising power, but rather itseconomic growth rate, newfound friendliness to free markets, and ability tointegrate into the global economy. Iran today rallies the alienated and rouses thedispossessed, but those seeking progress and prosperity have to look elsewhere forinspiration. If Iran wants to be a great power, it will have to further nurture itseconomy so that it serves as the engine of growth for the region that it could be.That would mean bringing itself into concert with a vital economic transformationunderway all around the region?the rise of a new middle class that is the keyto more fully integrating the Middle East into the global economy, and to thebuilding of better relations with the West. It is to this rise of a new middle classthat leaders in the United States and around the West should turn attention?tofuel its potential?rather than allowing the chimerical power of fundamentalism to dictate somuch of the approach to the region.

The great irony of thefundamentalist threat is that the two years from 1979 to 1981 in which Islamicfundamentalism shook the world and terrified the West were also its high point ofpower. That is not to say, of course, that after fundamentalism won Iran, turnedPakistan, and destabilized Egypt it just died out; fundamentalists are too vocal,active, well organized, and well funded for that. Fundamentalism most definitelyremains a worry, and its extremist edge a serious threat. Extremism that has beenfestering in the innards of Pakistan?s society is surging, laying claim tovast swaths of its territory, and those extremist forces are waging a two-prongedwar against not only foreign troops but the governments of both Afghanistan andPakistan. The thought of nuclear-armed Pakistan, with its 175-million-pluspopulation?deeply divided along ethnic lines, and with a troubled economy andweak government?unraveling before the extremist onslaught is unnerving to saythe least. A failed Pakistan in the clutches of extremism or plunged into civil war,and with no safeguards locking down its nuclear arsenal, would be deeplydestabilizing for the region and the world.

The larger truthabout fundamentalism?s drive to power, though, is that since 1980 it hastoppled no more dominoes. The Taliban visited horror on Afghanistan, but thisrag-tag army of religious zealots and tribal warriors amounted to no more than anincomplete insurgency in a broken corner of the Muslim world?an antiquebadland even before decades of war ravaged it. There have been no additional Irans,and the prospect that another Islamic state will arise?whether throughpeaceful means or violent ones?has been steadily declining.

The West must remain vigilant against fundamentalism, but that should notstop Western policymakers and publics from seeing the ?whole picture? inthe Middle East, and a vital truth of the region is that the fundamentalist strainof Islam is not practiced by the vast majority of the population, and isnoton the rise. What is true is that since 1980, abroader wave of Islamic resurgence has swept across the Middle East, andfundamentalism has surfed that wave rather than fueling it. The Islamic resurgence is much larger,deeper, and more complex. The vast majority of Muslims are moderate and pragmaticwhen it comes to religion, balancing law and piety with a healthy dose of mysticalpractices and folk religion.

It is not fundamentalism thataccounts for the ubiquity of Islamic influence across the region today; rather it isthe other way around: Widespread Islamic fervor?which can, but does not haveto, take on a fundamentalist form?has allowed fundamentalism to survive pastits prime. It would of course be foolish to ignore fundamentalism and the extremistsassociated with it, but it is also imprudent to consider fundamentalism the end-alland be-all of what we need to know about Islam and the Middle East. It is time thatwe take a good look at the vitality of the energetic blending of Islamic piety andcapitalist fervor that is flourishing in many pockets around the region.

In November 2006, when Pope Benedict XVI visited Turkey,he made a stop at the seventeenth-century Blue Mosque, so called for the more thantwenty thousand handcrafted cobalt-blue Iznik tiles that adorn its interior. Atestament to Ottoman grandeur, the great mosque is an architectural marvel ofunrivaled beauty. At one point, the gently strolling pontiff stopped and looked upat a large black tableau with ornate white calligraphy, etched into an arch at themosque?s main exit, and asked his guide what the flowing script said. Theywere the words of the Prophet, he was told: ?A merchant is the beloved ofGod? (al-kasib habiballah).

Benedict?s visit to Turkey was historic, his first to a Muslimcountry. It was also a hastily organized damage-control mission. Two months earlier,His Holiness had caused a furor when, in a speech in his German homeland, he hadevoked the criticisms of Islam made by fourteenth-century Byzantine emperor ManuelII Paleologus, who led the empire during its last days, as the Ottoman Turkssteadily encroached on its power, eventually seizing Constantinople. Manuel hadwritten a ?Refutation of Islam,? in which he argued that Islam was anirrational religion,an evil falsehood that had been spread by the sword.11Makingthe reference worse was the fact that Manuel, in his desperate efforts to obtainsupport for the fight against the Turks, had made an alliance with the pope in Rome.By quoting Manuel, the current pope seemed to be saying that Islam was essentiallydriven by jihad and was at odds with Western values?not only Christian values,but those of modernity altogether.

How ironic, then, that onthat day at the Blue Mosque, the pope discovered that for centuries, the last wordsworshippers read when leaving the mosque were a call to commerce. Not only wascommerce important to the seventeenth-century Muslim world, it is even moreimportant to that world today. Washington is certainly not entirely unaware of this.The United States has been supporting economic reform and business initiatives inthe Muslim world, but with too much focus on working with government planners andthe top-level business elite. Change will not come from this upper crust?ithas too much invested in the status quo and depends too heavily on the state. It isbusiness with small ?b? that should hold our attention.

All across the region, a whole new economy is rising, mixing local valueswith surging consumption and building ever richer ties to the global economy, andthis trend is not only every bit as powerful and important as the threat offundamentalism, it is more so.12

In the spring of2009, I met in Dubai with a group of Middle Eastern businessmen. Only a short timeearlier, the little emirate had been swept to dizzying heights of wealth andprosperity, and these businessmen had done quite well for themselves. Now thediscussion was more somber, focused not surprisingly on the global financial crisis.After much talk about failing banks and falling real estate prices, I asked thegroup how they were responding.

?Money is flying toBeirut,? one of them explained. ?Everyone is putting what they can inLebanese banks.?

Lebanese banks?

Why were these very savvy businessmen prepared to trust their substantial assetsand investments to banks in a country with a reputation for war and instability?theHezbollah-land that so worries the West? Were they making a political statement withtheir money, sending a further message to the West about their willingness tosupport their cause even in a time of financial trouble? Or was I missing theirpoint altogether?

?Why Lebanon?? I finally askedsheepishly.

?Well, the interest rate is much higher inLebanon than here,? one answered, while another pointed out what was alreadyobvious to the rest of the group: ?Lebanese banks sit outside the globalfinancial system. They have no toxic assets to worry about. Nor are they threatenedwith collapse or government takeover, as are banks in New York andLondon.?

Why had I needed to be reminded that capitalismis alive and thriving in the Middle East? There are signs of it everywhere, from theactions of these businessmen to protect their assets to the staggering rate at whichshopping malls and modern retail establishments of all kinds have gone up in theMuslim world, and not just in Kuala Lumpur or Dubai, where one sees extravagantRodeo Drive?style malls. In war-torn Beirut and fundamentalist-dominatedTehran, glitzy malls are filled on holidays with shoppers eager to buy the latestelectronics or fashionable home furnishings.

This capitalistflowering has had clearly definable cultural ramifications as well. A quick glanceat rooftops in any Arab city will leave little room for doubt that satellitetelevision has mesmerized the Arab world, to the chagrin of its dictators and theircensors. There are some 280 channels to choose from, and the more popular ones, suchas al-Jazeera or al-Arabiya, claim viewership in the tens of millions. It is also onthese airwaves that some of the most interesting religious debates take place.Clerics are not the only ones who draw the big audiences. They must now compete witha new breed of televangelists, who preach modernity-and business-friendlyIslam.

Internet use too is steadily growing. About 40 percentof Iran?s population surfs the Web, with the ranks of first-timers swellingconstantly, as opinion and information flow briskly into and out of socialnetworking websites and chat rooms, and then get further interpreted on blogs. Evenclerics maintain active websites, blogs, and Facebook pages, and have Twitter followings.Those two social networking sites took over the presidential campaign of 2009,upending traditional media to make way for new political dynamics in the country.The government has tried its hand at restricting and censoring the Net, but it isKing Canute ordering back the tide. And even if the hard-line ayatollahs and theirminions could strangle the Internet, what would they do about the explosion of cellphones and mobile texting? In 2000, fewer than a million Iranians had a cell phone.Now some 48 million?about two-thirds of the country?have one. Evenpeople too poor to obtain a regular mobile subscription can buy cheap prepaid phonesto start talking and texting. And it is not just Iran: Next door in war-ravagedAfghanistan, the close of 2008 found eight million mobile phones in use?aboutone quarter of the population. Pakistan?s numbers are even more impressive; in2008, 78 million were using mobile phones; up from a mere 750,000 in2001.

A vital characteristic of this flourishing capitalism isthat it goes so much hand in hand with the resurgence of traditional Islamic belief.All over the Middle East, piety is shaping consumption. Those who live by Islam alsodemand Islamic goods; not justhalalfood andheadscarves, but Islamic housing, haute couture, banking, education, entertainment,media, consumer goods (such as Europe-based alternatives to Coke and Pepsi, MeccaCola and Qibla Cola), and even vacations?Islamic cruises are a growth industryin Turkey, and the governor of Najaf in southern Iraq has been thinking of ways tomarket pilgrimage vacation packages in order to coax some of the million-plusIranians who visit the sacred sites in his city every year into staying longer andspending more. Some offerings mix the taste for Islam with that for globalization,as, for example, The Caprice, a luxury hotel with a distinctly French name thatcaters to the Islamically conscious vacationing on Turkey?s westerncoast.

This upwardly mobile class consumes Islam as much aspracticing it, demanding the same sorts of life-enhancing goods and services asmiddle classes everywhere. Their preference that those goods have an Islamic flavormakes Islam big business. A booming economic sector around the region is catering tothis exploding demand, and these rising Islamic consumers comprise as much as a sixth ofhumanity, spread across a vast expanse from Morocco to Malaysia, with notabletoeholds from Detroit to D?sseldorf and S?o Paulo toSingapore.

Americans are easily dazzled by the size ofChina?s economy, the speed of its growth, and the room it has to expand. Inrecent years, India?s economy has also made remarkable strides. Thinking ofthe notional ?Muslim-world economy? provides an interesting basis forcomparison. The global Muslim population of a billion-plus is about the same size asboth India and China?s populations. In 2008 the GDP of the economies of fiveof the largest countries in and around the Middle East?Egypt, Iran, Pakistan,Saudi Arabia, and Turkey, with a combined population of 420 million?was $3.3trillion, the same size as that of India, which has three times thepopulation.

The bottom line is: A billion consumers haveclout. Across economies as diverse as those of Mali, Dubai, and Indonesia?andoutside the Muslim-majority countries, in the Muslim diasporas?the demand forIslamic goods and services is strong and growing, and it has already created wavesin global markets. This is perhaps best demonstrated by the boom in Islamic finance,which is doing good work in further integrating the economies of the Muslim worldand the global economy.

For Americans,seeing the words ?Islamic? and ?finance? in the samesentence tends to conjure up worries about terrorism.13Theneed to identify and cut off terrorists? money flows is entirely legitimate,but ?Islamic finance? has nothing to do with funding extremism orviolence; rather the term refers to banking and other financial services?suchas insurance, mutual funds, equities, bonds, credit cards, and evenderivatives?that are compatible with shariah rules and regulations. Shariahrequires neither collecting nor paying interest on bank deposits or loans, and inthe case of bonds, limiting the amount of debt a company takes on in issuing bondsto the value of assets on its books. Islamic finance also means avoiding investmentin ventures that may violate the shariah, such as businesses that serve alcohol,involve gambling,produce devices that can promote immorality, or in some cases, even the use ofmannequins or bareheaded women in advertising.14

In place of charginginterest, Islamic finance relies on forming partnerships that demand that borrowers,lenders, and investors jointly take an equity position in business ventures, sharingin the risk and reward of those investments.15Thewhole thing works better in theory than in practice, and Islamic financiers have hadto develop entrepreneurial ways of working around these restrictions to make thesystem work. For instance, car dealerships will simply add the amount they wouldmake in interest for a loan to the cost of a car, and offer buyers a deferredpayment schedule.

Although Islamic finance remains afledgling, niche market in the vast global financial-services industry, it haslately been growing at the rate of 15 to 20 percent per year.16TheAmerican consulting firm McKinsey & Co. estimates that by 2010, assets held byIslamic financial houses will total $1 trillion, a fivefold growth in fiveyears.17The Western ratings agency Standard andPoor estimates that these assets could ultimately grow to as much as $4trillion.18The 2008 global financial crisis mayin fact give a good boost to these numbers as more Muslims may decide to pull theirmoney from traditional investments for the perceived security of the Islamicalternative.

There are some three hundred Islamic banks andinvestment firms operating in more than seventy-five countries. By the end of 2006,some 218 shariah-compliant mutual funds were managing an estimated $14 billion.19Iranaccounts for the most shariah-compliant assets ($155 billion in 2007), followed bySaudi Arabia and Malaysia ($69 and $65 billion each) and then Kuwait and U.A.E. ($38and $35 billion each).20These banks oversee banking servicestotaling close to $500 billion and an Islamic bond market worth $82 billion?amere one-tenth of one percent of the global bond market, but expanding fast. Thetotal investment in these bonds grew by an eye-popping 250 percent in 2006, andgrowth continued even with the global financial downturn.21

Three large MiddleEastern players dominate Islamic finance: the Faysal Group, al-Baraka, and theKuwait Finance House. The most active hub for Islamic finance has for many years been KualaLumpur?where Southeast Asia?s boom in the 1990s charted the way for theintegration of Muslim Malaysia and Indonesia into the global economy?but Dubaiand Bahrain now account for a growing share of the market. All of them now warilyanticipate competition from the larger financial centers of London, Tokyo, HongKong, and Singapore.

As an indication of how this form offinancing can serve to build ties between the Middle East and global economy, manyglobal financial brands such as HSBC, Deutsche Bank, Barclays, Credit Suisse,Citigroup, and the UK?s Black Rock are getting into the game. They aretargeting a growing market of Muslims in the West for retail banking as well as morelucrative upscale financial services, such as private banking and wealth management,and looking to gain growing shares of the booming Islamic-bond market. DeutscheBank, Barclays Capital, and BNP Paribas are now among the world?s top fiveissuers of Islamic bonds. The equity markets in the West are also joining in. DowJones has indexes for both Islamic bonds and Islamic investment funds.22Research and analysis into Islamic finance is also going on at Moody?s andReuters, and the premier annual gathering of experts on the subject takes place atHarvard University?s Forum on Islamic Finance.

London inparticular has set its sights on becoming a major center for Islamic finance. Thecity saw its first Islamic bank open in 2004, and since then two more have openedand a fourth is on the way. The London stock market issued its first Islamic bond in2007, and is well on its way to expanding into the sovereign Islamic-bond market.Competition is spurring legal reform and the creation of new regulatory mechanismsdesigned to encourage Islamic financial activity. So far that competition hasfavored Dubai, whose relatively hands-off regulatory environment is the mostattractive to investors and borrowers, but there is no denying that increasinglyIslamic finance is going global.

Arab Islamic banks aresetting up shop in Europe and Southeast Asia, and European and Southeast Asian banksare providing Islamic banking in the Persian Gulf. Banks such as SaudiArabia?s al-Rajhi or Kuwait Financial House have been building branches acrossthe Muslim world andcompeting with local Islamic banks such as the Dubai Islamic Bank or the IslamicBank of Jordan, or the Islamic arm of local mainstream banks or global financialoutfits like HSBC or Citigroup. Smaller markets are converging into one globalmarket ruled by the same regulations and standards, which mix Western businesspractices with Islamic ones, all enforced by Islamic scholars and shariah-complianceboards. Malaysia has tried to enforce standards by creating the National ShariahBoard, and there is a broader international effort aimed at creating commonstandards is in the works at Bahrain?s Accounting and Auditing Organizationfor Islamic Financial Institutions.23

Islamic scholarson lucrative retainers with financial institutions, some in America, help design newIslamic financial products?and even help bend the rules to sell finance toshariah-conscious customers.24One particularly influential one isYusuf DeLorenzo, an American convert from Brooklyn. In addition to advising twentyglobal financial institutions and a few Muslim countries, the dapper sheikh is thechief shariah officer (rhymes with chief financial officer) at Shariah Capital, aConnecticut-based Islamic hedge fund. Meanwhile, many of these customers come fromTurkey, Indonesia, and North Africa, where the religiously conscious middle class isgrowing.

When in 2006 the Dubai Port Authority acquiredBritish Peninsular and Oriental Steam Navigation (which managed a number of U.S.ports), some in the United States pointed to the $3.5 billion Islamic bond that hadfinanced the deal as proof of a threat to U.S. security.25Islamic bonds were then unknown to most Americans, and the mere mention of Islamwith relation to financing was enough to ring alarm bells. Yet a number of Americancompanies had already dipped their toes into these waters. In 2004, the Texas-basedoil group East Cameron Partners became the first American company to issue Islamicbonds.26Recently, Ford Motor Company?s $848million sale of Aston-Martin to the Kuwait-based Islamic bank Investment Darrequired Islamic financing. Caribou Coffee, America?s largest specialty coffeechain after Starbucks, is owned by a shariah-compliant private-equity firm based inBahrain.27In Europe, British developers havefinanced the multibillion-dollar purchase of London?s historic Chelsea Barrackscomplex with Islamic bonds,28while in 2004, the German provincialgovernment of Saxony-Anhalt became the first non-Muslim sovereign entity to do so,raising 100 million Euros in the process.29France, China, Japan, and Thailand areall poised to follow.

Key to understanding the growth ofIslamic finance, and the insight it offers into the up-and-coming mind-set of somany Muslims, is that it evolved due to the demands of average customers. Someobservers ascribe the spectacular growth of the last few years to the oil boom, andthe flow back to the region of an estimated $800 billion belonging to Muslims madenervous by post-9/11 financial regulations intended to clamp down on the launderingof money to fund terrorism. Surely those cash flows have greatly accelerated growth,but consider that this money that had been stashed away in America, Britain, orSwitzerland before 9/11 could, when it ?came home,? just as easily havegone into regular banks and investment funds in the Middle East, which areplentiful. The directing of so much money into Islamic finance suggests a strongspecific demand for this brand of the blending of capitalism and Islam.

Indeed shariah compliance has attracted many Muslims to investing who hadpreviously shunned formal markets. One can think of Islamic finance in its earlydays as somewhat akin to microfinance, meaning the provision of small loans to thoseshunned by traditional bankers because of low income and little or no collateral tooffer. When Bangladesh?s Grameen Bank pioneered the idea, the intent was notso much to make profits but to lift people out of poverty. But over the past decade,microfinance has evolved into big business, with large banks and investment fundscompeting over what the business strategist C. K. Prahalad calls ?the fortuneat the bottom of the pyramid.?30

Likemicrocredit, Islamic finance was a response to a moral imperative: to fulfill ademand for loans by those who wanted their business to be in compliance with theshariah. The largest Islamic financial institution, Saudi Arabia?s al-RajhiBank, started operations as a small firm providing the interest-free equivalent ofmodest loans, and it grew largely by bringing in new, piously interest-averseinvestors. Whereas in1978, savings accounted for only 10 percent of all deposits in Saudi Arabia,31thanksto Islamic banking, that number had grown to 53 percent by 2007.32In2008 the three Islamic banks in the kingdom accounted for 45 percent of allbank-credit facilities, and al-Rajhi now has more branches?many located awayfrom major cities?than any other bank in the kingdom, boasting an impressive$15 billion in deposits.33So popular was the opportunity to bankin this fashion that when Kuwait Finance House, now one of the world?s largestIslamic banks and the holder of its country?s largest single deposit pool,opened its doors, it attracted so many customers that it met the deposit goal forits whole first year within thirty days.34

There is noquestion that Islamic finance is now benefiting from an advantage in attractingdeposits and investments from the growing weal that the top of society, and in thegovernment, in prospering Southeast Asia and the oil-rich Persian Gulf. Financiersin the West know very well about the kind of wealth that floats around at the toplevels of these societies, especially the huge reserves of cash in governmentcoffers and sovereign wealth funds?investment funds run by the government,with government money. But the growing ranks of newly cash rich individuals in theMuslim world, who come not from the traditional elite but from the rising classes,are strong consumers of Islamic finance too.

Theircounterparts in Europe and the United States are also fans. Accenture, a globalconsulting company, estimates that demand among Muslims in Europe will drive thenext phase of the growth. Half of all Muslim middle-class savings in the worldbelong to Muslims who live in the West.35American Muslims are more likely thantheir coreligionists in Europe or the Muslim-majority countries to enjoymiddle-class status. According to Zogby polls, a majority of U.S. Muslims areeducated and earn more than $50,000 a year. Pent-up demand among middle-classAmerican Muslims has already made Islamic finance an instant success in Chicago. Nosooner had that city?s Devon Bank begun looking into the feasibility ofIslamic banking in 2002 than local Muslims came to it in droves looking forshariah-compliant home mortgages and car loans.36Islamic finance will likely soon be as ubiquitous in the West as in the Muslim world, and if Islamicfinance?s market share were to reflect the Muslim?s 20 percent share ofworld population, then shariah-compliant finance will be growing at a spectacularpace for some time.

Islamic finance is also attractive to manywomen who generate, own, inherit, or manage wealth, but who find themselvesinhibited by law or custom from dealing with the mixed-sex environment of regularfinancial institutions. ?Ladies only? banks have been a growth industry.Coutts, a private bank based in London, has been doing a brisk business in privatebanking services for wealthy Persian Gulf female residents.37Theair of propriety surrounding shariah-compliant finance is attractive to women. Thereare fewer stigmas associated with walking into an Islamic bank or investing throughIslamic investment arms without male supervision. To cater to this growing market,Islamic banks have been educating women in finance. The Kuwait Finance House, forexample, holds classes for women. Islamic finance firms are also hiring more womenthan do regular banks. A third of financial-sector employees in Bahrain andtwo-fifths of those in Kuwait, for example, are women.

All ofthis is not to say that Islamic finance will in any way become dominant in theglobal economy, not by a very long shot. Limitations will rein in the growth of thisbusiness. Islam?s ban on speculation, for example, means that transactionsmust be based on tangible assets, which makes it easy to do business in commoditiesand real estate, but much trickier to innovate financial products. Islamic financecould run out of assets to sustain its growth, and even short of that it mayoveremphasize investment in certain assets, such as real estate or retail, therebyincreasing the risk of losses. The business may also suffer from squabbles over justwhat is properly Islamic. The Islamic bond market took a tumble?and along withit the value of properties funded by Islamic bonds?when in 2008 a group ofclerics in Bahrain declared that most Islamic bonds are not Islamic because theyfail to shift the ownership of collateral to bond holders. Without that transfer,they argued, a financial transaction isn?t based on tangible assets and istherefore not Islamic.38

The cost of thatreligious ruling was high and the evidence that clerics can send the market tumblingwas disconcerting to many investors. The question is also open whether Islamicfinance can keep growing by tap-dancing around the matter of interest rates.Profit-sharing instruments, or other work-arounds such as providing indirect carloans, are relatively inefficient, incurring higher costs in putting deals together.39Islamic finance will need more innovation of clever strategies if it is to continueto grow market share by comparison to traditional finance. A great deal of money isbeing poured into research and development of schemes, but it?s hard to knowwhether those efforts will yield results.

Given ample demandand all the windfall oil cash sluicing around the Middle East, Islamic finance willlikely continue to ride high despite its inefficiencies, but it will eventually hita glass ceiling. Nonetheless it has already become a notable part of globalfinancial trade, and most important for our purposes here, it will serve as avehicle for integrating the Muslim economy ever more into the worldeconomy.

All this emphasis on morals in finance may not seemeconomically rational, but taking stock of the global financial crisis of 2008,there is something to be said for ethics in finance. Islamic financiers now bragthat their ethics steered them away from the risky ventures that have caused so muchhavoc, and will make them more attractive to investors going forward.40Indonesia?s President Susilo Bambang Yudhoyono recently told a gathering ofIslamic bankers in Jakarta that they must educate the West in the merits of theirenterprise.41

The reason,though, that all of this economic vitality around the blending of Islam andcapitalism is so important for the West to take note of is that it reveals so muchabout the nature of the new middle class that is driving this growth, and is in turngrowing ever larger and more influential. Some members of this new middle class arethe children of the oldhaute bourgeoisie, theirfamilies tied to large, venerable industries and the type of state patronage thatthe West is familiar with. But a far larger percentage?and here is thekey?comes from the provincial and lower social classes. These sons anddaughters of the poor and the provinces who have made the jump to the middle classhave done so byaccepting the requirements of modern economies and latching on to the economicrealities that define modernism. They have embraced the rules of the market,responding to its incentives, and are guided in their decisions by the desire toserve their economic interests. So energetic is their commitment to the capitalistcredo that their activities now account for most of the real economic growth in theregion. The consumerism of the general population is largely the result of theirhandiwork.42Ambitious and resourceful, they fillthe ranks of the professionals, the entrepreneurs, the corporate businessmen, andthe traders. It is they who have established for the next generation a new economicmodel of the good life here on Earth.

The interests that thiseconomy is creating, and the ties with the global community that it is forging,offer ample opportunities for engaging this ?critical middle? that hascome to be the center of gravity in one Muslim-majority society after another. Incoming years, that middle is only going to get bigger, and richer: In 2007, GDP grewat an annual rate of around 6.1 percent in the Muslim countries of Southeast Asia(Indonesia and Malaysia) and the Arab countries of the Persian Gulf rim (followed byrobust but slightly lower rates in Egypt, Pakistan, and Turkey). Europe and theUnited States, by comparison, grew at around 2.2 percent that year. In 1970, only 4percent of the professionals in Malaysia were Muslim; today, that figure is closerto 40 percent. Since 1970, Malaysia has emerged as a success story of globalization,one of the largest exporters of electronic goods to the United States and anintegral part of the global supply chain for the computer and electronicsindustries. Globalization and rising middle classes with big wallets?and acontinuing interest in living as observant Muslims?have gone hand inhand.

The crucial aspect of this ?critical middle?that is difficult for those in the West to grasp is that for this population, Islamis a powerful supporter of the drive to modernity. The great majority of Muslimsthink that Islam improves their lives. They want heaven later, and wealth in themeantime?and think that handling the latter well can help lead to the former.As Pope Benedict learned at the Blue Mosque, Islamic piety is not only about things that the Westfears; it is also about things that the West appreciates. This distinctive blendingof Islamic values and economic vitality is a crucial development in the Muslim worldthat should shape our approach to building better relations with theregion.

Will the Muslim businessmen of the coming century leada capitalist revolution much as Protestant burghers did in Holland four centuriesago? We do not know yet, but it is possible. The mayor of the booming town ofKayseri in central Turkey, where many of the so-called Islamically conscious?Anatolian Tigers? come from, thinks so. ?I had read Weber,?he says, referring to the German sociologist who first credited Calvinist ethic forthe rise of capitalism. The idea of ?how Calvinists work hard, save money andthen reinvest it into business? seems, he continued, ?very similar towhat was happening in Kayseri.?43Reflecting on the words of the Prophethanging in the Blue Mosque, the mayor of Hacilar, a deeply religious little boomtown not too far from Kayseri, explained the business activity around him saying?opening a factory in Islam is a sort of prayer.?44Ifthere is going to be genuine capitalism in the Middle East, in the broad sense ofthe term as experienced by the West?where individuals working through marketsaccount for growth and prosperity?it will come from these pious businessmenand not from state-led initiatives and the state-sponsored economic elitesassociated with them who have for much too long ruled the Middle Easterneconomies.

If European history is any guide only this robustbreed of capitalism will bring true modernizing change to the Muslim world. Themodern world was invented by children of the Reformation, but it was not theirpuritanical and intolerant faith that transformed the world?far fromit?but rather trade and commerce that took hold in unlikely backward cornersof Europe like Scotland, home to the early Industrial Revolution and the likes ofAdam Smith, David Hume, and Sir Walter Scott.45

If the Middle East is tobe properly integrated into the global economy, turn to democracy, give women theirrights, embrace values that transcend cultural divides, and keep extremism at bay,then it too will have to be transformed by the capitalist revolution. The mostdecisive battle for the future in the region will not be the one overreligion?inwhich, as we shall see, the tide has already turned against extremism. Nor will itbe the growing battle over political rights, as hopeful as that is. The key strugglethat will pave the way for the decisive defeat of extremism and to socialliberalization will be the battle to free the markets. If that battle is won byprivate-sector business leaders and the rising middle class tied to them, thenprogress with political rights will follow.

Even in Iran, thepotential for opening, and an economically led entry into the world community, isstrong. As the election protests vividly revealed Iran has a dynamic civil society.Women?s right activists, students, labor unionists, journalists, bloggers,artists, and intellectuals have made up the backbone of the struggle for reform andcontinue valiantly to resist oppression, bad laws, and arbitrary rule, and theirvoices could be heard loudly and clearly during the election. During the presidencyof the reformist Muhammad Khatami between 1997 and 2005, they seemed to hold thepromise of being able to liberate Iran from theocratic oppression and set it oncourse for true democracy. That campaign and the effort to elect the reformcandidate Hossein Moussavi faltered, for reasons that we will explore further later,but those who launched those movements are still around, and they still believe infreedom. The civil society that they represent grew in tandem with the privatesector, relying on its economic health to energize demands for rights. For thatenergy to nudge Iran decisively in the direction of change and openness,private-sector dynamism must be reignited.

When China openedto the world, human rights and political reform were hardly the goals Communistleaders had in mind. In fact, booming China all too often seemed to feel that itssuccess made it free to ignore outside pressures to yield to its dissidents, changeits laws, or move in the direction of pluralism and democracy. Whatever change cameto China in the form of gradual legal reform and greater civil society activism owedmuch to pressure from investors and traders. Deepening ties with global businessforced China to change many laws and practices?to adopt what the Americangeostrategic writer Thomas P. M. Barnett calls the transparent modern ?rulesets? of the world?s developed and well-integrated?core.?46None of the changes that Chinagrudginglymade?often in response to embarrassing crises like scares over the SARS virusand tainted toothpaste and pet-food exports?was explicitly political innature. Yet they represented significant progress nonetheless.

A legal system and bureaucracy forced to change in one area becomes more receptiveto change in other areas as well. Fueling the activities of the Middle East?srising middle class, and working to bring the economies of the region more fullyinto the web of globalization, can push the status quo to the tipping point wherenational leaders have no choice but to embrace change and try to make the most ofit. That is the key first step toward liberalization of the political systems. Theroad to human rights, social freedoms, and democracy runs through business growthand economic progress.

If we were to ponder how change in Irancan change the Middle East (as it did once before in 1979), and how the specter of arising Iran could guide the region around it in a new direction we would have toconclude that things will go right when developments inside Iran align with the maintrend that is afoot in the region. The strong interests of the West are in seeingIran line up with, not against, the logic of economic change; to yield to a risingbusiness sector and a new middle class that would change politics and religion andthen amplify the same trend in the Arab world. But we are not going to be able tohelp Iranians get there, or leaders in the other critical nations of the region,until economics becomes as important to our thinking about policy as hard power. Itis time to think less about